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Wed November 25 2020

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Zeitgeist issues dampen Bellway profits

20 Oct Despite additional costs created by the Covid-19 restrictions and the continuing fall-out from the Grenfell Tower fire, national house-builder Bellway has still banked a tidy £236.7m pre-tax profit.

Bellway’s annual results for the year to 31st July 2020 show revenue down 31% to £2,225.4m (2019: £3,213.2m) as housing completions fell by the same percentage to 7,522 (2019 - 10,892).

With the operating profit margin shrinking from 21% last year to 14.5% this time, pre-tax profit was down 64% to £236.7m (2019: £662.6m).

Extra costs during the year were incurred due to a mix of the national lockdown and changes to building regulations, which have meant design changes on new projects and cladding to be replaced on legacy ones.

Covid and Grenfell – the zeitgeist issues facing the UK construction industry.

There was a non-exceptional Covid-19 expense of £18.9m in relation to extended site durations and implementing new operating procedures on sites. There was also an exceptional Covid-19 related expense of £25.8m –£14.5m from the interruption to construction activity during the lockdown and £9.9m on aborted land deals.

There were additional costs incurred due to post-Grenfell changes in building regulations for new high-rise apartment blocks, effective from August 2019. 

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Bellway chief executive Jason Honeyman said: “This has had a further negative effect on site margins in the year, as projected whole site cost estimates were updated to reflect the additional costs associated with ensuring that building envelopes fully comply with revised fire safety regulations.  In some cases, the amended elevational designs required alterations to extant planning permissions.  This process has caused delays in site commencement dates which, in an environment where revenues have generally been flat and subcontract prices have been rising, has resulted in a further deterioration in site margins.”

Bellway has also set aside £46.8m as an exceptional charge to help owners of legacy apartment schemes undertake fire safety improvements.

Since the start of August, reservations have been running at 239 per week, up 31% on the same period for 2019, which was 183 per week.  As of 4th October 2020, Bellway’s order book is at a record high £1,869.6m (compared to £1,311.6m a year ago.

Productivity levels have continue to improve since the lockdown and are currently between 85% and 90% of those achieved in financial 2019.  So long as there are no more national lockdowns, Bellway expects to sell of around 9,000 homes this financial year, at an expected average selling price of around £290,000.

“Despite these challenging times, Bellway is in a robust position, with a motivated and dedicated workforce,” said chairman Paul Hampden Smith.  “It benefits from a strong, ungeared balance sheet, a record order book and has the capability to respond to evolving market conditions.  Our underlying operational strength and focus on quality, together with a conservative and responsible approach to managing the business, will serve the group well over the longer-term.”

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